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Tuesday, May 31, 2011

Germany's Nukes and The Limits of "Green" Energy

Germany has announced plans to phase out all its nuclear reactors by 2022. It's worth taking this pledge with spoonfuls of salt. Sweden has been announcing various plans to phase out its nuclear reactors since the 1970s, but because they provide half of Sweden's electricity, the phase-out hasn't happened. Germany's plan is to move to "renewable" energy sources like solar, wind, and hydroelectric. But Germany's location doesn't make it a natural site for solar or wind-power, and it is unlikely to go on a dam-building spree.

Green energy is worth investigating, researching, and perhaps even subsidizing to some extent because it is green: that is, it has potential to reduce air pollutants like sulfur and particulates, as well as the risks posed by climate change. In addition, it could help in reducing dependence on foreign supplies of oil. But it is extremely unlikely to provide a surge of economic growth.

Germany's Chancellor Angela Merkel said:"We believe that we can show those countries who decide to abandon nuclear power -- or not to start using it -- how it is possible to achieve growth, creating jobs and economic prosperity while shifting the energy supply toward renewable energies."

Green technologies like solar and windpower are not yet cost-competitive in providing major support to a national power-grid. At least in the short- and medium-run, green energy means higher electrical bills or higher government subsidies. Neither is a pathway to economic growth--although they may be worth doing as a cost for meeting environmental goals.Government policies provide high prices for producers of green energy can subsidize job creation in those industries, but just as high prices for oil create jobs in oil-related industries without stimulating economic growth, high prices for alternative energy won't stimulate growth, either. I expect that Germany's industrial sector, which uses about half of the country's electricity, will make that point clear when the time is right.

Perhaps eventually, with sufficient research and technological gains, renewable energy resources can become cost competitive with fossil fuels, hydro, and nuclear. But compare for a moment the productivity gains that have come from technological developments in information technology, including computing and telecommunications and the internet. These gains arise partly because of "Moore's law," which is essentially that the price of computing power falls by half every two years. As computing power has gotten cheaper, it has allowed users of this technology to find an ever-widening array of productivity-enhancing applications. But even the most ardent advocates of green power do not seriously believes that technological breakthroughs will cause the cost of electricity to drop by half every two years for several decades, nor that lower energy costs alone can trigger waves of productivity growth in other industries. Again, the bottom line is that green energy is worth investigating because offers the possibility of environmental gains. However, Germany's Merkel is almost certainly incorrect in believing that it can be a basis for future productivity growth.